Senators Offer New Bill to Ban Internet Taxes

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Sens. Judd Gregg (R-NH) and Joseph Lieberman (D-CT) have introduced a bill that proposes a three-year moratorium on state and local taxation of Internet sales and services.

The bill, S.1888, comes on the heels of last month's revised Internet Tax Freedom Act, authored by Rep. Christopher Cox (R-CA) and Utah Gov. Mike Leavitt, a Republican.

Provisions of S.1888 also promote developing a uniform set of definitions on regulation and taxation of commercial Internet transactions and establishing a national commission to survey Internet taxation and regulation by states and municipalities.

The Direct Marketing Association supports S.1888, or the Internet Fairness and Interstate Responsibility Act. It opposes the Cox-Leavitt bill because it contains what the DMA considers fast-track approval of an Internet tax moratorium in exchange for sales-tax power for states on out-of-state mail and telephone purchases.

"The hidden sales-tax proposal would reverse decades of Supreme Court protection of out-of-state companies," said Mark Micali, vice president of government affairs at the DMA, "which cannot be compelled, unless by an act of Congress, to collect for states and localities from consumers in states where they have no physical presence."

The Gregg-Lieberman bill is designed to be an alternative to proposals that lean toward a national Internet sales tax.

"[S.1888] puts the focus on limiting taxation and on developing a uniform system for commercial transactions that will reduce administrative burdens on Internet commerce," Gregg said in a prepared statement.

The DMA also supports S.1888 because it thinks it will move the responsibility of Internet tax decisions to mail-order companies as opposed to states. The proposed commission would be made up of 15 representatives, including three governors (one who governs a state without a sales tax), three representatives of either manufacturers of Internet equipment or Internet service providers, three mayors (one from a nontax jurisdiction) and three representatives of catalog or mail-order companies.

S.1888 states that a super majority (10 of the 15) must agree to recommend any policy. The commission would meet during the first two years of the moratorium and issue a report to Congress and the president.

For the DMA, the makeup of this commission is key "since a proposal from the commission would have the consensus of both revenue officials and businesses involved in e-commerce," Micali said. "Those recommendations would then receive a full and fair hearing before Congress."

The DMA is lobbying for defeat of the Cox-Leavitt bill, which is in the House Judiciary Committee.

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